A taxpayer owns a company which has a property that earns no income. The following costs were incurred by the taxpayer on the property for the last 12 years: audit fees, bank charges, insurance, interest on bond, and municipal charges. The taxpayer has no
Author: Peter Surtees
Important:
This answer is based on tax law year ending 28 February 2021.
Answer:
It seems the company hasn’t been trading with the property if it has no income. This means that all the expenses you refer to are not deductible, disallowed by section 23(g) of the Income Tax Act, the negative side of the general deduction formula. So the only way you could consider getting a deduction is in the Eighth Schedule to the Income Tax Act. Paragraph 20 deals with base cost and subparagraph (2) provides that: Relevant tax law “The expenditure incurred by a person in respect of an asset does not include any of the following amounts- …(b) expenditure on repairs, maintenance, protection, insurance, rates and taxes, or similar expenditure”. You can be sure that SARS would include municipal charges under “similar expenditure”. So I fear your client loses on both revenue expenditure and capital expenditure; the first because the property wasn’t trading, and the second because the expenditure wasn’t part of base cost. Please refer to the case CIR v Allied Building Society. Note especially the part relating to unproductive property.